EXCLUSIVE: FERMA stresses importance of preserving risk financing for captives

Complexity for captives is already increasing because of the need to comply with the Solvency II Regulations, originally designed for commercial insurers.

That's the view of Carl Leeman, FERMA board member, who also says that the biggest threat to captives owned by European companies is increased administrative cost.

“One reason captives work is that they are light structures. The Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) measures may require further investment in administration when they are implemented by national tax authorities,” Leeman adds.

“FERMA will do its utmost to avoid that. At minimum, we can say that the OECD has a negative perception of captives. As FERMA, we are trying to demonstrate to the OECD that captives are an important risk management tool in today’s unstable economic environment.”

In September 2016, FERMA published a position paper to dismiss misconceptions about captives, and they have encouraged member associations to use this paper to approach their national tax authorities, who will be responsible for deciding how to put in place the BEPS measures.

Leeman said: “More recently we met senior executives from OECD and stressed to them the importance of preserving these risk financing capacities. This is not about tax, but a fear that the administrative costs of owning a captive will become uneconomic, and we will lose valuable capacity.

“We are continuing our advocacy on behalf of our members with OECD and with the European Commission and Parliament to increase their understanding of the role of captives in the European economy.”